APA-Backed Garnishment Reform Becomes Law by Curtis Tatum, Esq. with the APA

On April 14, Michigan Governor Rick Snyder signed into law House Bills 4119 and 4120 that will overhaul the state’s garnishment laws. The APA supports this legislation and advocated for its passage as it progressed through the Michigan Legislature. On September 30, when this legislation becomes effective, Michigan employers will be subject to a fairer process that alleviates harsh penalties for inadvertent garnishment processing errors

Needed Reform
Before the recent legislative changes, Michigan’s garnishment laws provided that a writ of garnishment remained in effect for only 182 days. The short effective period created an unnecessary burden for employers because they often had to stop withholding for an expired writ of garnishment only to reinstate the withholding upon receipt of a new writ. This process could go on for years. While employers received a $6 administrative fee with every garnishment order, that fee did not adequately compensate employers for their actual processing costs.

Michigan’s garnishment laws also subjected an employer to liability for up to the full amount of the outstanding debt. The system set up a “race to the courthouse” where a creditor could obtain a judgment against an employer in as little as 14 days after service of the writ of garnishment if the employer had not properly responded to the order.

Beyond the severe penalty provision, Michigan’s garnishment system was needlessly complex, which provided opportunities for errors and miscommunication. A writ of garnishment could have been sent to an employer’s branch office, where it was mishandled or simply delayed in reaching the proper office. Once the employer realized the mistake, it may already have been liable for the outstanding debt.

Legislative Fixes
Under the new garnishment laws, a writ of garnishment will remain in effect until the balance is satisfied, which will reduce the administrative burden employers face. Instead of regularly ending and then reinstating withholding, employers only need to set up the garnishment in their payroll system once. To provide fairer compensation to employers, the administrative fee that the creditor must include when the writ is served will increase to $35. While this fee is an improvement, the Legislature did not adopt an APA-proposed amendment that would have allowed an employer to collect an additional administrative fee on an individual payment basis, consistent with the fees employers may charge for processing child support payments. Because of opposition from creditor representatives, the APA did not push the amendment in this legislative session.

The new garnishment laws provide Michigan employers relief from severe penalties for inadvertently mishandling a writ of garnishment. The laws create a new process that creditors must follow before an employer may be held liable for a failure to comply with the order. This process requires creditors to inform employers of their error and provides the employer several opportunities to comply with the order. If a garnishment order is not answered within 14 days, the creditor must serve a “notice of failure” on the employer. The employer then has an additional 28 days to comply with the order before a creditor may seek a judgment against the employer. Even after a default judgment has been entered, the employer has 21 days to begin proper withholding and petition the court for a reduced judgment. In its petition, the employer must certify that its failure to comply with the order was “inadvertent or caused by administrative error, mistake, or other oversight.” The reduced judgment is limited to an amount at or below the amount that would have been withheld for 56 days, if the garnishment was handled properly.

Under the new garnishment laws, Michigan employers may recover the funds they pay toward an employee’s debt under a default judgment. Employers are authorized to withhold funds from wages without obtaining written consent, provided that:

  1. The employee is informed at least one pay period in advance of the withholding;
  2. The deduction is not greater than 15% of gross wages;
  3. The deduction is made after other deductions including those required or permitted by law or authorized by the employee; and
  4. The deduction does not reduce wages below the applicable minimum wage.

Several other provisions will bring clarity to the garnishment process. One provision renders garnishment orders invalid if they are sent to an employer’s branch office because they are not “served on the garnishee in accordance with the Michigan Court Rules.” Additional provisions include (1) requiring the creditor to report the balance of the debt at least every six months, and (2) requiring the creditor to file a release of the garnishment within 14 days after the judgment has been satisfied.

APA Support Throughout the Legislative Process
APA believes this legislation provides for a much improved garnishment system. In 2014, the APA submitted statements of support prior to committee hearings in both the House and the Senate. Neither bill made it through the legislature prior to the end of the legislative session; however, they were reintroduced earlier this year. Prior to a House Commerce and Trade Committee hearing on February 3, the APA, through its Government Relations Task Force (GRTF) Subcommittee on Child Support and Other Garnishments,submitted a “statement in support” of the legislation. The Committee subsequently approved the legislation, which was then overwhelmingly approved by the legislature. The House passed both bills by a margin of 109-1 while the Senate voted 37-0 in favor of the legislation.

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